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Category: Markets / Donald Trump / World Politics

Local market due for correction following US political uncertainty: analysts

Wednesday, 22 Mar 2017 14:40:43 | David Taylor

Donald Trump's promise of a better economic future has up until now pushed global markets higher. (AP: Pablo Martinez Monsivais)

Several key measurements show the Australian share market is "due for a correction" following political uncertainty in the US, financial analysts warn.

Market sentiment turned overnight in response to fears President Donald Trump may not have support, even from within his own party, to pass a key healthcare reform bill.

Sellers turned to the Australian market this morning, wiping out much of this year's gain in the first few hours of trade.

CMC Markets stockbroking analyst Michael McCarthy said the uncertainty could have implications for Australia.

"It was an ugly day at the office today, in fact the biggest fall of 2017 so far for Australian shares," Mr McCarthy said.

"[There's] real pressure on banks due to concerns about rising costs, and real pressure on mining and energy shares after falls in commodity prices overnight meant that the Australian market was hit hard.

"Volumes were light, so not a lot of conviction in the selling today, but if it does continue tomorrow and we do see a pick up in volumes, this might be the beginning of a new short-term down trend."

Analyst Marcus Padley said several key stock measurements were now flashing red.

"For the first time since the middle of 2014, the US market has got overbought," Mr Padley said.

"It's one the highest price to earnings ratio since 2004 and the CAPE ratio [another measure of share market value] is the highest it's been since the tech boom."

However, Mr Padley said there was no need for immediate concern.

"We'll see how [Trump's] healthcare act goes, but once that goes through everything will right itself," he said.

"There's a heck of a lot to be unwound in the Trump trade, but what's going to happen is most likely going to have a delay — it's not like he's been assassinated.

"I don't think there's any particular need to throw the baby out with the bathwater at this stage, but obviously you'd be on the edge of your seat rather than asleep under your doona."

US healthcare bill to impact share market

Mr Trump, and his promise of a better economic future for the US, has up until now pushed global markets higher.

The US stock market has surged 10 per cent, while the Australian share market, having also enjoyed China's economic tailwind, has risen 15 per cent.

The problem analysts point to though is that there have not been any company profit reports or economic data to support such moves.

The suggestion is that if Mr Trump cannot get his first healthcare reform through Congress, there may be little hope for major economic reforms in the future.

Sean Callow, senior currency strategist at Westpac, said for this reason a lot is riding on this week's healthcare bill vote.

"The healthcare vote on Thursday, if that does get through the markets are going to trade that as though it means it's all clear sailing into tax cuts and perhaps some infrastructure spending," Mr Callow said.

"It will definitely be received very poorly if the vote does fail, because of course one of the assumptions of the market since the election was that when you've got the White House, the House and Senate all controlled by the one party that you get things done.

"When you've got a bitter war within the Republican party then that's not what the markets had priced in over our summer."

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